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How is Child Benefit changing in 2024?

Child benefit changes
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    The cost of living crisis and a struggling economy have placed significant strain on more families than ever before, causing many to rely on financial support services like Child Benefits.

    From April 2024, the UK Child Benefit rates will increase from £24 to £25.60 per week for the eldest or only child and from £15.90 to £16.95 for other children. The income threshold for higher earners will also increase from £50,000 to £60,000.

    This form of Government support is changing in 2024 to help more families who are struggling – particularly middle-class families and higher-income earners. So, to help you understand your eligibility and how these changes might impact you, this article will look at how Child Benefit is changing in 2024.

    We can discuss how to optimise your tax filings and ensure that you are making the most of the benefits available to your family while complying with tax obligations. Get in touch with us today.

    What are Child Benefits?

    Child Benefit is a payment made by the government to parents and guardians to help with the costs of raising children. It is paid monthly and is available to all eligible parents regardless of their income level, although it is subject to tax implications for higher earners.

    The allowance is paid to you for each child in your family, but you can also receive National Insurance credits which go towards your State Pension.

    Who is eligible to claim Child Benefit payments?

    Eligibility for Child Benefit is primarily determined by responsibility for a child under 16 (or under 20 if they are in approved education or training). There is no restriction on nationality or residency status, but the claimant must be physically present in the UK and be responsible for the child.

    Old rules on Child Benefits

    Under the old rules on Child Benefits, parents would receive £42 per week for their eldest child and £15 per week for any other children. Under the previous system, Child Benefit was also withdrawn through a tax charge for individuals earning over £50,000.

    This charge increased progressively, with the benefit effectively being reduced to zero for those earning £60,000 or more. This approach often discouraged higher earners from claiming the benefit, even if they were initially eligible.

    New rules on Child Benefits

    The 2024 changes on Child Benefits look to provide families from higher earning brackets to benefit from the support system.

    Below, we’ve gone over what these new rules mean and how they might impact your Child Benefits:

    Increased threshold

    The most significant change in 2024 is the increase of the income threshold at which the tax charge applies, from £50,000 to £60,000. This adjustment means that families, where the highest earner has an income slightly over the previous threshold, can now benefit fully without any reduction.

    Gradual reduction rate

    Another change is the modification of how the benefit is phased out for earners between £60,000 and £80,000. Instead of a steep reduction, the decrease in benefit will be more gradual as the charge is tapered.

    For every £200 earned between £60,000 and £80,000, the benefit reduces by 1%, compared to the previous higher rate, allowing families to retain a portion of the benefit at higher income levels.

    If your income is more than £80,000, then the charge will be equal to the amount of the Child Benefit payment.

    Who will benefit from these changes?

    The revised rules are designed to extend Child Benefit support to more middle and upper-middle-class families who previously may have been marginally above the cutoff.

    This change is expected to alleviate financial pressures on families nearing the £60,000 income mark, enabling them to receive partial benefits where they would have previously received none.

    This change is due to the fact that the Child Benefit threshold was never adjusted for inflation, making more families liable for the high-income child benefit charge.

    This charge has caused many parents to experience total marginal tax rates that were in excess of the 40 % higher-rate income tax band. As a result, parents with three children will have paid tax at 71 % on earnings between £50,000 and £60,000 per year.

    So, a household with two parents earning £49,000 each (totalling £98,000) could receive full child benefit, but a single-parent household earning £50,000 would be losing out.

    Should I claim Child Benefit if I earn over 60k?

    Understanding the new rules and cut-offs for Child Benefit is important if you’re considering claiming for it.

    So, to help you make the right choice, let’s go over when it would make sense to start claiming:

    When would I pay the Child Benefit tax charge?

    If you earn over £60,000, the benefit will not be lost immediately but reduced gradually. It remains beneficial to claim Child Benefit because it can contribute towards National Insurance credits, which count towards your state pension eligibility. It’s worth noting that claiming ensures your child receives an automatic National Insurance number as they approach 16 years of age.

    As the charge is designed to be tapered, there is still value in claiming if you’re earning between £60,000 and £80,000. You will receive a 1 % charge for every £200 of income that exceeds £60,000. If you earn more than £80,000, then the charge will cancel out any Child Benefits you receive.

    If you’re a high-income earner, get in touch with WIS to discuss your tax situation

    For high earners, navigating the implications of Child Benefit on your tax situation can be complex. That’s why our team at WIS Accountancy offer tailored tax advice and guidance – to help you optimise your taxation.

    These upcoming changes to Child Benefit are designed to provide more substantial support to families across the UK, making it essential for parents and guardians to stay informed and prepared. Whether you’re just above the lower threshold or near the upper limit, understanding these new rules can significantly impact your family’s financial health.

    If you have any questions about the new changes to Child Benefit, or would like our assistance in advising you about your tax status, please get in touch with our team at WIS Accountancy today.

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